Luxury headwinds call for caution

From Brexit to a proposed new Swiss corporate tax regime, lawyers at the first Luxury Law Alliance gathering in New York discussed global obstacles and opportunities for luxury companies.

Luxury companies are facing unsettling times as geopolitical turmoil created great challenges – from Brexit to changing US trade rules under a new presidency, Barbara Kolsun, Cardoza’s Adjunct Professor of Fashion Law, said at the launch of the Luxury Law Alliance in New York.

The event, which was attended by a number of top US luxury companies, looked at the global challenges facing the luxury industry in 2017. In her keynote talk, whilst acknowledging the difficulties facing the European Union, New York Irish Consul General Barbara Jones was optimistic that Europe would rise to the challenge of dealing with Brexit and said that lawyers and the rule of law were more important than ever in the equation.

Lynn Usdan, ex-GC of Donna Karan, said there were a number of headwinds impacting on the luxury marketplace – from the economy to terrorism. ‘Luxury is very cyclical,’ she said. ‘It blows hot and cold.’

Markus Zwicky of Swiss law firm Zwicky Windlin & Partner discussed the changing tax position in Switzerland Swiss luxury market. The country was about to vote in a referendum to overhaul its corporate tax regime, bringing Swiss practices into line with international standards. The aim was to keep corporate tax rates globally competitive whilst abolishing special treatment for multinational companies. (The vote took place on 12 February and voters rejected the plan).

Meanwhile, Max Luthy, Director of Trends & Insights at Trendwatching, said there was a polarisation of ideas on branding in this rapidly changing world – companies could view it as a big opportunity for branding or an opportunity to stay silent. He cited the example of Ben & Jerry's in Brazil, with the ice-cream company offering free ice cream to those with relatives they disagreed with on the issues of the day.

In such a fast-changing political environment, K&L Gates partner Arthur Artinian warned luxury companies to pay attention to all areas of contracts – and particularly exit strategies, especially if they were signing long-term deals.

“Fashion and luxury companies need to keep two overarching principles in mind when they are thinking about Brexit. Firstly, they should ensure that they introduce flexibility and agility in the legal arrangements they put in place to enable them to manoeuvre around the challenges of Brexit over the coming 2-3 years - this is required in a number of key areas including a company’s licence and distribution arrangements, IP protection and enforcement strategy, and operational requirements,” Mr Artinian said.

He advised fashion and luxury companies to consider moving away from “a regional approach to legal compliance in Europe to a more national or domestic approach. That means that they need to be thinking about the UK and other EU member states as separate and distinct markets, as divergence in the legal, taxation and regulatory regimes becomes more likely.”

Partner Adam Glass of UK law firm Lewis Silkin was particularly impressed by the predictions of Max Luthy. “Wise words stayed with me from Max Luthy from Trend Watch: if you want clues to trends in luxury retail, look outside to other sectors, whether that is automotive, food and beverage or other – the indicators are all there as to where we may be heading.”